Costain rallies on settlement of debt, receivership

Market consideration of Costain (West Africa) Plc has risen by more than 85 per cent over the past two weeks as the troubled construction giant struggled through settlement of a bank loan that had led appointment of receiver manager for its assets.

Costain has maintained a steep rise at the stock market in the past two weeks, especially against the sustained bearishness that pervaded the market all through last week. The Nation’s investigation indicated a capital gain of 85.2 per cent over the past two weeks.

Costain’s performance contrasts sharply with w two-week average loss of 2.83 per cent indicated by the stock market’s common index.

Costain has sustained its position as the second highest gainer, in percentage terms, in the market over the past two weeks. It rose by 43.48 per cent two weeks ago and added 29.09 per cent last week.

Costain’s share price had opened two weeks ago at N1.15 per share and close last week at N2.13 per share, its opening price this week.

The All Share Index (ASI), the common value-based index that tracks all equities on the Nigerian Stock Exchange (NSE), closed last week at 40,571.62 points as against its opening index of 41,751.55 points penultimate week.

Market analysts attributed the renewed interest Costain, Nigeria’s first generation construction giant that had sunk to its nominal value of 50 kobo, to the exit of the company from debt-induced receivership.

Head, Research and Investment advisory, Sterling Capital Markets Limited, Sewa Wusu, said the steep rise over the last two weeks was due to positive investors sentiment owing to the liquidation of the company‘s debt with First Bank.

“The company regained investors’ patronage after the news emerged that it has finally settled the debt. So most forward looking investors saw value in its share price given that the equity was trading at low. This explains why the positive sentiments have favoured the stock. There are also possibility that the company might secure some juicy contracts into the year to boost earnings expectation going forward,” Wusu said.

The Board of Costain late last month announced that it had made final settlement of concessionary loan to FirstBank of Nigeria Limited, thus finally liquidating the debt which had led to the appointment of a receiver manager by First Bank for the company late last year.

According to Costain, the final instalment of the concessionary sum was paid via its letter to FirstBank dated January 13, this year, which FirstBank acknowledged receipt of the sum paid via its letter dated January 15, this year.

“FirstBank of Nigeria Limited has confirmed that based on this development, Costain (West Africa) Plc is deemed to have discharged its obligation to the bank on this facility. The bank also stated that steps are being taken to discharge the receivership at the Corporate Affairs Commission and all relevant authorities will be notified as appropriate,” the NSE had stated in a notice to the investing public.

The Nation had earlier reported that the board of Costain was considering decisive measures to be taken to rescue the ailing construction company.

The board had met to consider urgent measures to be taken to halt the downspin and resuscitate the struggling 65-year-old construction company. These included possible restructuring strategies, the wobbling financial position of the company and its consistent failure to meet prerequisite post-listing and disclosure requirements.

The first construction to be listed on the NSE, Costain has struggled with streak of losses and poor corporate compliance records over the years. The NSE imposed a sanction of N2.85 million on the company for failure to submit its 2011 audited report within the timeline, a similar situation that led to higher fine of N3.6 million for the 2012 audited report. It was also fined N575, 505 for failure to obtain the necessary approval from the NSE before announcing the appointment of an external auditor.

Latest audited report and accounts for the year ended March 31, 2012 showed a generally negative performance outlook. With declining sales, increasing losses and negative working capital, significant erosion of the net assets had heightened concerns about the prospects of the construction company.

Total turnover dropped from N9.20 billion in 2011 to N7.39 billion. Total cost of sales and administrative expenses stood at N9.11 billion in 2012 as against N8.39 billion in 2011, setting the background for the huge increase in loss before tax from N880.82 million to N1.93 billion. Loss after tax rose to N1.85 billion in 2012 compared with N1.25 billion in 2011. On this, each ordinary share carried a loss of N1.71 in 2012 as against N1.15 in 2011. With this, shareholders’ funds dropped by N1.93 billion from N6.61 billion to N4.68 billion. This implied reduction in net assets per share from N6.10 to N4.32. The company struggled with a negative working capital of N1.10 billion in 2012 as against N1.02 billion in 2011.

The latest report, though worse, followed similar fundamental pattern since 2008. For numerous shareholders that had bought into the company’s message of restructuring and turnaround in 2007, it’s not only the recent losses that count but the unyielding depreciation that has taken over a company which they bought into its corporate message of turnaround and public offer at N13 per share.

With the emergence of Shoreline Energy International Limited as the new core investor in Costain, the company had floated a combined rights and public offer in December 2007 to raise N8.04 billion. Nearly three-quarters of the shares were offered to pre-qualified existing shareholders under the rights issue at a discount of N11 per share. New investors paid N13 per share to buy into the public offer. As the application lists closed, investors had watched eagerly as their share price hit a high of N26.55 per share by the end of January 2008. But between 2008 and now, shareholders have lost on both counts.